The dollar climbs for third day as yen weakens on policy and geopolitical risks
Dollar extends rebound against yen
The US dollar strengthened against the Japanese yen for a third straight session on Friday, pushing USD/JPY into the mid‑159.00 area in Asian trading.
The move extended a rebound from Thursday’s low near 158.25, which had marked the pair’s weakest level in more than a week. The advance was underpinned by shifting interest-rate expectations in Japan and renewed geopolitical tension in the Middle East.
Yen pressured by policy doubts and Middle East tension
The yen lost ground as markets pared back expectations of a near‑term Bank of Japan (BoJ) rate increase. Comments from BoJ officials have been interpreted as cautious, with little concrete guidance on the timing of any future hikes.
At the same time, uncertainty over the economic fallout from renewed instability around the Strait of Hormuz weighed on the Japanese currency. Reports of continued tensions and disruption in the key shipping lane revived concerns over global energy supplies, supporting the dollar and keeping risk sentiment fragile.
Policy divergence widens between US and Japan
The gap between US and Japanese monetary policy is becoming more pronounced, reinforcing the dollar’s broader strength.
- In the United States, policymakers have kept the federal funds rate in a 3.5%–3.75% target range. Some officials have scaled back expectations for rate cuts this year, citing persistent inflation pressures.
- In Japan, the BoJ has left its key short‑term policy rate at 0.75%. Governor Kazuo Ueda has avoided giving clear signals on the pace of future tightening, which markets read as a sign of caution.
The International Monetary Fund expects Japan’s economy to slow to 0.7% growth in 2026 and projects that the policy rate will rise only gradually, toward around 1.5% over time. The uncertain pace of normalization continues to cap support for the yen.
Strait of Hormuz disruption hits energy‑importing Japan
Geopolitical turmoil in the Middle East is adding to the pressure on the yen by driving energy‑market uncertainty.
The United States’ blockade of the Strait of Hormuz, in place since April 13, has injected fresh risk into global oil flows. Roughly one‑third of all seaborne traded oil normally passes through the narrow waterway, making it one of the world’s most critical chokepoints.
Japan, which relies heavily on imported energy, is particularly exposed. A previous closure of the strait in March 2026 triggered the largest monthly oil price jump on record, as oil loadings at ports west of Hormuz fell by about 76% from the prior month. Rising or volatile energy costs typically weigh on Japan’s trade balance and, in turn, its currency.
Despite the current blockade, reports indicate that more than 20 vessels transited the area within a 24‑hour period, underscoring the fluid and unpredictable nature of the situation.
Mixed performance for yen across major currencies
The yen’s moves were uneven across the foreign‑exchange market on Friday.
- It weakened 0.21% against the US dollar, 0.19% versus the euro, and 0.15% against the British pound.
- It strengthened 0.34% versus the Canadian dollar and 0.32% against the Australian dollar.
The divergence reflects differing sensitivities to energy prices, rate expectations, and regional risk factors among the major currencies.
Technical picture: bullish bias above key support
From a technical standpoint, the recent bounce in USD/JPY followed a test of the 200‑period exponential moving average (EMA) on the four‑hour chart, a level many traders see as a key dynamic support.
- Immediate price support is seen around 159.47.
- Stronger support is clustered near the 200‑period EMA at roughly 158.46.
As long as the pair holds above this area, analysts expect any short‑term pullbacks to remain limited within a broader bullish setup.
Momentum indicators also lean positive. The relative strength index (RSI) is around 61, signaling firm buying interest while staying below the typical overbought threshold of 70. The moving average convergence divergence (MACD) line is turning higher, reinforcing the upside bias.
Fed outlook capped by inflation, BoJ weighs wage gains
While geopolitical and policy divergence factors support the dollar, moderating expectations of additional Federal Reserve tightening are tempering further gains.
Upcoming US inflation data will be closely watched. Headline inflation is projected to rise to 3.4% year‑on‑year. A stronger‑than‑expected reading could push back the timeline for any potential rate cuts from Washington, lending further support to the dollar.
In Japan, recent wage negotiations delivered an average pay increase of 5.09%. BoJ officials are assessing whether higher wages will translate into more durable domestic inflation, a key condition for any sustained tightening cycle. Stronger wage‑price dynamics could eventually offer some support to the yen, but the timing remains uncertain.
What markets are watching next
In the coming weeks, traders will focus on three main themes:
- Foreign‑exchange signals from Tokyo: Any comments on currency policy from Japan’s Finance Minister Satsuki Katayama will be scrutinized. Her previous verbal interventions have preceded sharp yen rallies, and markets remain alert for the threat of direct or indirect action.
- Developments near the Persian Gulf: Any escalation or easing of tension around the Strait of Hormuz will be tracked for its impact on energy prices and global risk sentiment, both of which feed directly into yen performance.
- US inflation and rate expectations: Fresh US price data and Fed communications will shape the market outlook for US rates. A prolonged period of high US yields versus still‑low Japanese rates would keep upward pressure on USD/JPY.
For now, the combination of policy divergence, elevated energy risk and supportive technicals continues to favor the dollar over the yen, with the 200‑period EMA acting as a key line in the sand for near‑term trading.
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